Full and true disclosure requires disclosure of the real nature of credits and loans; reassessment and additions were sustained.

Mere production of account books does not amount to a full and true disclosure of material facts if the true character of loans or bank credits is not revealed. On the facts, the assessee had not disclosed the real nature of the borrowings and deposits, and the Income-tax Officer could reasonably believe that income had escaped assessment; reassessment under Section 34 was therefore valid. The surrounding circumstances also supported the inference that the borrowings were not genuine and that the bank deposits represented secret profits from undisclosed sources, so the additions were sustained in favour of the Revenue.

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Issues: (i) Whether proceedings under Section 34 of the Indian Income Tax Act were validly initiated on the ground of failure to disclose fully and truly all material facts. (ii) Whether there was material for holding that the borrowings represented the assessee's secret profits from undisclosed sources. (iii) Whether there was material for holding that the bank deposits in the account of Prafulla Chandra Sudha Khaddar Bhandar represented the assessee's secret profits from undisclosed sources.

Issue (i): Whether proceedings under Section 34 of the Indian Income Tax Act were validly initiated on the ground of failure to disclose fully and truly all material facts.

Analysis: Production of account books did not necessarily amount to a full and true disclosure of material facts. The statutory scheme distinguished cases of omission or failure to disclose material facts from cases based on information in possession of the Income-tax Officer. On the facts, the loans and the bank credits were not shown in a manner that disclosed their true character, and the officer could form the requisite belief that income had escaped assessment.

Conclusion: The proceedings under Section 34 were validly initiated, against the assessee.

Issue (ii): Whether there was material for holding that the borrowings represented the assessee's secret profits from undisclosed sources.

Analysis: The lenders were shown to be persons of modest means, the surrounding circumstances made the borrowings improbable, the attestors were connected with the assessee's business, and the evidence produced did not satisfactorily establish genuineness of the loans. The authorities were entitled to draw an inference from the totality of circumstances that the borrowings were not genuine.

Conclusion: There was material to treat the borrowings as the assessee's secret profits, against the assessee.

Issue (iii): Whether there was material for holding that the bank deposits in the account of Prafulla Chandra Sudha Khaddar Bhandar represented the assessee's secret profits from undisclosed sources.

Analysis: The deposits were not shown in the books of the assessee or of the firm in a manner consistent with the explanation offered, and the assessee failed to substantiate the claim that they were merely accommodation cheques or unrelated amounts. The authorities were justified in treating the credits as income belonging to the assessee from undisclosed sources.

Conclusion: There was material to hold that the bank deposits represented the assessee's secret profits, against the assessee.

Final Conclusion: All the referred questions were answered in favour of the Revenue, sustaining the reassessment and the additions.

Ratio Decidendi: Mere production of account books does not amount to full and true disclosure of material facts if the true nature of income or credits is not disclosed; where the Income-tax Officer has reason to believe that income has escaped assessment on such failure, reassessment under Section 34 is valid.

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